But in this blog post, let us focus on what Facebook plans to achieve through its proposed currency,Libra.

What is Libra?

Facebook’sLibra will be a cryptocurrency, which will allow you to make purchases or allow you to send money to individuals at almost zero transaction fees. According to Libra, “Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”

A Roman unit of weight, Libra in the context of Facebook’s cryptocurrency tries to invoke a sense of financial freedom. You can buy or spend your Libra online or at a grocery store near you by using third-party interoperable wallet apps or Facebook’sCalibra wallet, which the company plans to incorporate into all its apps, including WhatsApp and Messenger. Facebook is planning to launch its cryptocurrency Libra through its blockchain system sometime in the first half of 2020.

Facebook does not plan to control Libra fully. Instead, Facebook will get a single vote – just like other founding members of the Libra Association – which include Uber, Andreessen Horowitz and Visa. Each of the founding members has invested at least $10 million in the project. The open-source Libra blockchain will be promoted by the association with its Move programming language. The association also plans to enter into agreements with other businesses to use Libra for payment and give rewards and discounts to customers.

Facebook will launch a subsidiary company by the name of Calibra to handle its crypto dealings and protect the privacy of its users by not allowing your Libra payments to mingle with your Facebook data, which means it cannot be used for ad targeting. Your publicly visible transactions will not be tied to your real identity. Libra association members along with Facebook (Calibra) will earn interest on the money that users cash in, which is kept in reserves so that the value of Libra remains stable.

Facebook’s global digital currency plans to promote financial inclusion for those who don’t use banking services, and it is expected to have more privacy and decentralization. Facebook does not intend to make a lot of money immediately through Libra; instead, they want to be there for the long-term so that they can get more payments into its online domain. According to Facebook’s VP, David Marcus, “If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.”

What does Facebook want to accomplish with Libra?

As reported byJosh Constine – Editor-at-Large forTechCrunch – “In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or an upstart built a popular coin and could monitor the transactions, they’d learn what people buy and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion people who lack a bank account might choose whoever offers them a financial services alternative as their online identity provider too. That’s another thing Facebook wants to be.”

The existing cryptocurrencies like Bitcoin and Ethereum are not properly designed to be a medium of exchange because of their uncontrolled price, which results in their erratic swings. It becomes difficult for the traders to accept these coins as payments. Also, these cryptocurrencies cannot be exploited to their full potential because there are not many places where they can be used in place of dollars, and it is not easy for the mainstream audience to deal in these coins. But Facebook can tackle this problem head-on because it has more than seven million advertisers and 90 million small businesses in addition to its user experience expertise.

Facebook now wants to turn Libra into another PayPal. Facebook is confident because it thinks that it is easier to set up Libra, it is easy to use as a payment method, more accessible to those who don’t have access to banking services, more efficient than others because there are fewer fees, and flexible and long-lasting due to developers and decentralization.

According to Facebook’s Libra documentation, “Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee.” When you look at exploitative remittance services charge, which averages around 7% for the money sent abroad, totaling $50 billion from users annually, it certainly seems to be a big improvement. Libra would allow microtransactions of a few cents, which is unthinkable with the in-built credit card fees.

But it is a steep climb for Facebook ahead in the cryptocurrency market.

How does Libra work?

All you need to do is cash in your local currency and get Libra, which you can spend like dollars, with fewer transaction fees and without disclosing your identity. You can also cash your Libra whenever you want.

The Libra Association

It would have been difficult for the general public to trust Facebook in the crypto world, which is why major corporations have been assembled to form the Libra Association. This not-for-profit entity headquartered in Switzerland will overlook the development of the token, keep the reserves safe and streamline the governance rules of the blockchain.

Before the official launch of Libra, Facebook plans to increase its present 28-member founding members to 100.

The Libra currency

The Libra cryptocurrency will be represented by three wavy horizontal lines. To make it a good medium of exchange, the value of Libra would largely stay stable. The value of Libra would be attached to a basket of bank deposits and short-term government securities for a number of internationally stable currencies like dollar, pound, yen, Swiss franc, and euro. To keep the Libra stable, the Libra Association will maintain the basket of assets, and they can also change the composition when required to counterbalance major fluctuations.

The exact start value for Libra is still under consideration, but it is likely to be close to internationally stable currencies.

The Libra Reserve

Every time someone cashes in a dollar, that money goes into the Libra Reserve, and the person gets an equivalent amount of Libra in exchange. Should someone cash out of Libra, the Libra that is returned would be destroyed or burnt, and the person gets the equivalent value of the local currency in exchange. It means that there would always be 100% of the value of the Libra in circulation.

The Libra blockchain

All Libra payments would permanently be recorded in the Libra blockchain, which is a cryptographically authenticated database. Libra blockchain is a public online ledger engineered to handle 1,000 transactions every second. It means that the Libra transactions would be much faster as compared to Bitcoin (which allows seven transactions every second) and Ethereum (which allows 15 transactions every second).

The founding members of the Libra Association will operate and verify the blockchain.

Libra transactions cannot be reversed. The Libra association in case of an attack will temporarily stop the transactions and take corrective measures for future smooth operations.

The Libra blockchain currently is known as ‘permissioned,’ and here only those entities that fulfill certain requirements are admitted to a special in-group, which will control the blockchain through consensus. But as of now, the Libra association has not found a reliable ‘permissionless’ structure that is safe and secure. The goal of the Libra Association is to create a permissionless system.

What are the incentives to use Libra?

The Libra Association wants to involve more developers and merchants for its cryptocurrency project. The association plans to issue incentives, possibly in the form of coins to those who use the currency. Those who bring in more customers and keep them active for over a year will be rewarded. Traders will also receive a percentage of a transaction for every transaction they process. Businesses can keep the incentives or pass a portion of it to their respective customers.

Libra privacy concerns

Individuals can spend and own Libra through Libra wallets like Calibra and other third-party Libra Association members like PayPal. The philosophy is to make it easy for an average consumer to send money to a friend or use it wherever they want just as they conveniently send a Facebook message.

About the privacy of the Libra, Mark Zuckerberg had this to say, “It’s decentralized — meaning it’s run by many different organizations instead of just one, making the system fairer overall. It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography which helps keep your money safe. This is an important part of our vision for a privacy-focused social platform — where you can interact in all the ways you’d want privately, from messaging to secure payments.”

What is the difference between Libra and Bitcoin?

There is a mixed bag of reaction for Facebook’s Libra cryptocurrency project. Some say that it will be nothing more than PayPal with the addition of blockchain technology, while others say that it will lead to more adoption of traditional cryptocurrencies like Bitcoin.

The Bitcoin and Libra are different. While Bitcoin is a decentralized network – which is permissionless and censorship-resistant – Libra will be operated by a group of companies that will still remain answerable to the governments of the world.

There is some skepticism, though, among the lawmakers of several countries against Facebook’s attempt to create their digital currency. As regards monetary policy, Bitcoin and Libra are poles apart. While Bitcoin follows its own supply schedule, Libra is only backed by a basket of currencies that are issued by governments. Libra, unlike Bitcoin, has a face, which can be targeted by the government whenever they want to regulate it.

Also, since Libra will not operate in a permissionless manner, it is debatable for some whether it qualifies as a cryptocurrency or not. Moreover, when talking of Facebook, it is difficult for the consumers to totally forget about all their privacy-related scandals.

Libra seems to be a minor variation of the traditional financial system and is unlikely to have any significant impact on the Bitcoin price.

Will Libra change the world?

According to Facebook’s Libra white paper, the goal is as follows: “A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.”

Their stated aim is to create better access and improved, inexpensive and open financial services for all people – regardless of their location or economic status. The road ahead for Facebook’s Libra project is arduous and is difficult for a single entity to achieve. That is why a consortium of corporations is coming together to helm the project.

But only time will tell whether Libra project gets the support from various stakeholders – most importantly of all – consumers.

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